Functions of Mutual Funds

Mutual funds play a crucial role by enabling individuals to invest in a diverse range of securities, including common stocks, preferred shares, debt instruments, and gold. This investment avenue offers numerous benefits to investors, such as the opportunity to partake in the growth of the fund's underlying investments and achieve inflation-beating returns over the long term. This article explains the functions of mutual funds and the role of mutual funds.

Overview of mutual funds

A mutual fund serves as an investment avenue that aggregates funds from numerous investors and allocates them across various securities, encompassing stocks, bonds, gold, and other assets. These funds are facilitated by Asset Management Companies (AMCs) and are overseen by seasoned professionals equipped with extensive expertise in financial markets. These professionals conduct thorough research and strategically invest in stocks and other assets based on fundamental analysis and macroeconomic factors. The primary objective is to maximise returns for the fund's investors.

Investing in a mutual fund entails paying an expense ratio, which covers the costs associated with managing the fund. The expense ratio can vary depending on the specific fund. Mutual funds offer a valuable opportunity for investors to diversify their portfolios and mitigate risk while still potentially yielding consistent returns. Additionally, with the ability to invest in mutual funds for as little as Rs. 500, they present an affordable option accessible to a wide range of investors.

What are the functions of mutual funds?

Mutual funds serve a pivotal role in providing investors with access to a diversified portfolio of securities, spanning stocks, bonds, commodities, and real estate, thus mitigating the risks associated with investing in a single security. Here are the main functions of mutual funds -

Pooling of funds

Upon the release of the New Fund Offer (NFO), interested investors contribute their funds to the mutual fund scheme. The mutual fund company accumulates these funds and invests them across a range of stocks, bonds, and other securities. Investors have the flexibility to purchase mutual fund units according to their investment capacity, emphasising the importance of researching the fund's objectives and reputation.

Professional management

Experienced and qualified fund managers oversee mutual funds, making informed investment decisions. These managers conduct thorough research, analyse market trends, and actively manage the portfolio to align with the fund's investment objectives.

Liquidity

Mutual funds offer liquidity to investors, enabling them to buy or sell mutual fund units on any business day at the prevailing Net Asset Value (NAV). This liquidity feature enhances flexibility and facilitates easy access to invested capital.

Returns

Investors accrue returns as the NAV of the mutual fund appreciates over time. There are various avenues through which investors can earn returns from mutual funds. Dividend mutual funds distribute dividends among investors, while growth mutual funds reinvest returns back into the fund, amplifying potential gains.

Scope of mutual funds

• Mutual funds have expanded significantly over time due to the emergence of new Asset Management Companies (AMCs) and the introduction of innovative products.
• They offer investors a wide range of schemes to choose from, providing flexibility and diversity in investment options.
• Mutual funds are particularly beneficial for investors who lack the time to conduct in-depth stock market research and monitor their investments regularly.
• Investors can select from various types of mutual funds based on their investment objectives and risk tolerance levels.
• Different mutual fund categories include Equity funds, Bond funds, Money market funds, and Balanced funds, each catering to specific investor preferences.
• Specialised mutual funds target specific sectors like healthcare, IT, FMCG, green energy, or gold, enabling investors to align their investments with their outlook on specific industries.
• Global mutual funds, such as S&P 500 and NASDAQ, allow investors to diversify their portfolios by investing in international markets.
• Careful evaluation and research, along with guidance from financial advisors, are essential for investors to make informed decisions and maximise returns.
  

How to purchase mutual funds?

1. Define your investment goals:

• Understand your investment horizon, risk tolerance, and objectives.
• Long-term wealth growth: Consider index funds.
• Short-term investment: Opt for debt mutual funds.
• Tax saving: Look into ELSS mutual funds.

2. Choose between direct or regular mutual funds:

• Direct mutual funds: Invest directly, lower expense ratio.
• Regular mutual funds: Through intermediaries, higher expense fees.

3. Research and select mutual funds:

• Explore equity, debt, hybrid, tax-saving, and sectoral funds.
• Check past performance, expense ratio, and fund manager's experience.

4. Open a demat account:

• If you don’t have one, open an account with Bajaj Finserv Mutual Fund Platform.
• Visit the website to initiate the process.

5. Select the mutual fund:

• Log in to your Bajaj Finserv Mutual Fund Platform
• Choose the desired mutual funds and place your order.
  

6. Monitor your investment:

• Regularly track your investment performance.
• Check the NAV periodically.
• Receive statements from the mutual fund house.
• Stay updated on market and economic trends for informed decisions.
  

Functions of mutual funds – A Quick Summary

Mutual funds play a vital role in the world of investing by offering people a wide range of investments without needing to manage each one individually.

When you invest in a mutual fund, you're pooling your money with other investors, and together, you're buying into a portfolio of stocks, bonds, and other assets. The idea is to pick investments that have the potential to grow in value, giving returns that beat inflation and help reach financial goals. With so many different types of mutual funds out there, catering to various investment objectives and risk levels, it's essential to know what you're looking for before diving in.

With options spanning various categories like equity, debt, and hybrid funds, investors can find suitable choices among the 1000+ mutual funds listed on the Bajaj Finserv Platform and compare mutual funds. Fund managers play a pivotal role in navigating these options, aiming to optimise returns while managing risks. Moreover, regulatory bodies like AMFI ensure transparency and ethical practices within the mutual fund industry, fostering investor confidence. As investors weigh their options, thorough research into scheme-related documents and market trends becomes paramount, empowering informed investment decisions. Through the Bajaj Finserv Platform, investors gain access to a robust ecosystem that facilitates seamless investing and ongoing support, positioning them for long-term financial success.

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